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Economy in Brief

Michigan Consumer Sentiment Sinks to Its Lowest Since 1980
by Tom Moeller February 13, 2009

The University of Michigan reported that its mid-February reading of consumer sentiment fell sharply. The 8.2% month-to-month decline to a level of 56.2 nearly reversed all of the gains of the prior two months and returned the index to its lowest level since 1980. The latest figure was down 21% from last February and the reading fell short of Consensus expectations for an unchanged level of 61.0.

During the last ten years there has been a 62% correlation between the level of sentiment and the three-month change in real personal consumption expenditures.

The expectations component of consumer sentiment led the decline in the overall February index. The 15.1% month-to-month drop reversed all of the increases during the prior several months and the series landed at its lowest level since 1980.

Expectations for business conditions during the next year plunged 42.6% m/m to a new low for the series which dates back to 1947. Expectations for conditions during the next five years also fell. The expected change in personal finances also fell back to the lowest level since last June with a sharp 9.6% decline.

The current economic conditions index ticked up 0.9% after the sharp 4.3% January decline. Buying conditions for large household goods were viewed as having improved very slightly but the index remained down 17.1% from a year earlier. The view of current personal finances also added very slightly to the large January gain but the index remained down by roughly one-quarter from last February.

The opinion of government policy, which apparently influences economic expectations, improved to the highest level since last April . Ten percent of respondents thought that a good job was being done by government while a reduced forty-three percent thought that a poor job was being done.

Inflation expectations for the the next year fell back to 2.0%. It was as high as 7.0% in May. The range of expectations is from slight price deflation to a 5.0% increase in prices, though that latter figure is half the year-ago expectation. The expected inflation rate during the next five years also fell to 3.0%.

The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver's USECON database with details in the proprietary UMSCA database.

Stabilizing the Housing Market: Next Steps is the recent speech by Federal Reserve Board Governor Elizabeth A. Duke and it can be found here.

Making Sense of the Subprime Crisis from the Federal Reserve Bank of Boston is available here.

University of Michigan Mid-February January December February y/y 2008 2007 2006
Consumer Sentiment 56.2 61.2 60.1 -20.6% 63.8 85.6 87.3
  Current Conditions 67.1 66.5 69.5 -19.9 73.7 101.2 105.1
  Expectations 49.1 57.8 54.0 -21.3 57.3 75.6 75.9
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